ThyssenKrupp AG, Germany's largest steelmaker, today said that it will sell its Inoxum stainless steel division to Finland's Outokumpu Oyj, for €2.7 billion ($3.55 billion).

As part of the transaction, ThyssenKrupp will retain a minority 29.9 per cent stake in Inoxum, receive a ''significant'' cash payment and transfer financial and pension liabilities of Inoxum to Outokumpu, the Essen-based steelmaker said in a statement.

Combining Inoxum and Outokumpu would create the world's largest maker of stainless steel with more than 19,000 employees, over €10 billion in annual revenue and annual output of cold-rolled stainless steel in excess of two million tons.

According to the tentative agreement, the transaction would value Inoxum at an enterprise value of €2.7 billion. Outokumpu will pay €1 billion in cash, 29.9 per cent in new shares, a loan note of €235 million, and assume Inoxum's debt of €422 million.

ThyssenKrupp said that it has reached an agreement with union representatives wherein the deal excludes forced layoffs through 2015.

The steelmaker has agreed to keep its facility for melting scrap metal in Krefeld, Germany running through the end of 2013 and a similar one in Bochum through 2016.

The deal must be approved by the German group's supervisory board at an extraordinary meeting later today and also requires the approvals by the regulatory authorities,

Inoxum group employs 11,500 people in Germany, Italy, Mexico, China and the US. Its US unit is currently building a new plant for stainless steel flat products in the state of Alabama.

The plant in Alabama was one of steel maker's biggest ever foreign investments in the US. It spent $5 billion in the overall complex, including $3.6 billion on the carbon flat steel facilities and $1.4 billion on the stainless area.

Essen-based ThyssenKrupp, whose business stretches from submarines to lifts, had announced in May last year an extensive reorganisation that includes the sale or spinoff of stainless steel business in order to cut debt and focus on engineering.

ThyssenKrupp last week reported net loss of €1.8 billion ($2.31 billion) on revenues of €43.36 billion for fiscal 2010-11.

In 1992, British Steel Stainless merged with Sweden's Avesta to form Avesta Sheffield, and in 2001, Avesta Sheffield merged with Outokumpu to create a new company called AvestaPolarit, which became the third-largest stainless steel producing company in the world at the time.

The new company AvestaPolarit, which was based in Stockholm, was owned by Corus Group (Now Tata Steel Europe), institutional Swedish investors and Outokumpu.

In 2004, Corus sold its entire stake to Outokumpu, making AvestaPolarit a wholly-owned subsidiary of the Finland-based company.

Outokumpu takes its name from a town in the eastern part of Finland where a rich copper ore deposit was discovered in 1910. Over the years Outokumpu has evolved from a mining and multi-metal company to one of the world's leading producers of stainless steel.

It employs some 8 000 people in more than 30 countries and is one of the world's six largest producers of stainless steel.

It has plants in Finland, Sweden, the UK and the US, that produce a wide range of stainless steel products including hot and cold rolled, precision strip, tubular and long products together with a comprehensive range of fittings, flanges and welding consumables.

In October 2011, Outokumpu announced 1,300 job cuts in order to reduce costs and improve profitability after its third-quarter net loss doubled to €135 million ($186 million).

For 2010, the company reported a net loss of €123 million on revenues of €4.229 billion.

European stainless-steel producers have struggled with higher raw-material costs as prices of the metal decline.

Luxembourg-based ArcelorMittal, the world's largest steelmaker, had spun off its stainless unit, Aperam, January 2011. 

European stainless-steel prices have dropped 13 per cent in the past year, according to Metal Bulletin data, while prices for nickel, a key raw material in stainless steel production, has risen 12 per cent on the London Metal Exchange over the same period.